Experts offer strategies for deciding if joining a group, consolidating, or expanding a practice is right for you

By Diane Donofrio Angelucci, contributing writer, August 01, 2014

Like specialists in other fields, some dermatologists are taking a hard look at their viability in the current health care climate. Many are considering whether to join a group practice, consolidate or expand their existing practice, or explore other options.

Reasons for consolidation, for example, include pursuing economies of scale, diversification, and strengthening their position strategically for accountable care organization and practice alignments. Consolidation may be a first step in making the aggregate group more attractive in the marketplace for acquisition, said Richard Cooper, Esq., partner and manager of the National Healthcare Practice Group with McDonald Hopkins in Cleveland.

However, there is an underlying common denominator for many. “The real reason why people are looking at joining, expanding, or consolidating is they are worried about the future and they seek safety in aligning with other business partners who can share risk and maybe provide capital,” said David Wagener, chief executive officer of Advanced Dermatology Management in Miami.

Regardless of the options they are considering, dermatologists need to weigh them carefully and examine what they are seeking from a potential move.

Shifting environment

A number of developments are occurring amidst current health care changes. “There is definitely an emerging trend, which is private equity capital getting involved and building large, corporate-owned dermatology groups,” Wagener said. In addition, dermatologists are also forming group practices. “There are more physicians coming out of training with the intention of finding a job rather than starting a practice. That’s a significant trend. And that feeds into groups and corporate practices because those people need employees.” Dermatologists with more experience may also be seeking to join a group, citing increasing regulatory burdens that are expensive for a solo practitioner to address. See the July 2014 issue of Dermatology World.

Large practices are continuing to grow as long as they can take advantage of fixed costs, including those related to such compliance efforts, said Thomas Olsen, MD, who practices with Dermatologists of Southwest Ohio, is a clinical professor of dermatology at the Wright State University School of Medicine, and is director of the Dermatopathology Laboratory of Central States. “You’re basically not adding that much to cost, and at the same time you should be increasing revenue substantially, particularly in an area where you’re the main practice and you have a large volume of patients coming to that particular practice,” he said.[pagebreak]

Weighing options

Joining a large group may provide better positioning in a marketplace so practices can negotiate better agreements with payers and will enable physicians to take advantage of more professional management, accounting, and business practices, Wagener said.

This is also true for expansions, Dr. Olsen said. “Obviously, by being a group, with a number of people in a number of different locations, we can cover a lot of different patients who are out there in the space,” he said.

Clinically, physicians in a group can also share expertise, Dr. Olsen said. For example, some members may specialize in laser treatment, Mohs surgery, cosmetic surgery, dermatopathology, or general dermatology, enabling practices to offer a variety of services. “Within the group you have opportunities to share that information to keep people abreast of what’s happening in these different areas. We meet quarterly as a group and discuss various aspects of the practice,” he said. Furthermore, in a large practice, more physicians can take advantage of technology investments such as electronic health records (EHRs), he said.

Within Advanced Dermatology Management, Wagener explained, dermatologists have an extensive support system that maintains all of the nonclinical aspects of operating a practice. “Our charge is to help the physicians run the business and quality assurance portion of their practice as well as they run the clinical practice,” he said.

Daniel Mark Siegel, MD, clinical professor of dermatology at State University of New York at Downstate School of Medicine in Brooklyn, and his two partners merged their practice, Long Island Skin Cancer, to become a division of ProHealth Care Associates LLP last year. “One of my major motivations was the sheer volume of administrative bureaucracy that we see on a regular basis,” he said. “This gave us a chance to have that work being done by someone who is doing it for a large group of doctors, making use of economies of scale.”

The larger group has greater negotiating power, Dr. Siegel said, and physicians don’t need to handle human resource issues. “Having someone else do that does take certain burdens away, but it also takes some control away. But for me, it was worth it,” he said. In addition, he explained, there was no mandate to change the way they cared for patients, and he can spend more time with patients and less on administrative tasks.

When consolidating groups, there are additional issues. “You have an issue of whether you have an appropriate blend of cultures,” Cooper said. “The larger you are, the more business and other issues you face so it becomes a more complicated practice.”

Cooper added that a larger group is more complex; the individual dermatologist’s power may be more diffused when spread across a larger number of physicians, and day-to-day business issues may be handled by non-physician managers. Furthermore, larger groups tend to be more formal, he said.

In addition, Cooper explained that there is always a risk that the arrangement will not work. “Even though we would normally build in what we call break-apart provisions that define a process for separating if it doesn’t work, if you break apart it’s damaging. It takes a while to get back in the position you were prior to the transaction, if you can ever truly get fully back to that position. This means you need to go forward only after appropriate due diligence, when you have a strong comfort level of success,” Cooper said. It can also be disruptive, he said, if members disagree on whether to consolidate.[pagebreak]

Dr. Siegel explained that they have experienced some growing pains, as they wish to transition to a dermatology-specific EHR system. “ProHealth Care Associates LLP is trying to move everyone to one EHR and we are still trying to make the argument that a dermatology-specific EHR that can be linked with any front and back office is better than a ... product designed for family docs and internists to code and capture massive amounts of irrelevant data.” However, in the grand scheme, joining the group has worked out well. “We’re happier. We’re getting reliable reimbursements. We’re in a large group that has market power and bargaining leverage,” he said.

Physicians considering whether to join a group must understand the expectations, Wagener said. “If they’re expected to see a patient every seven minutes and move them through and that’s the culture in that practice, if that’s not right for them, don’t take the job,” he said. Within his group, which includes 32 locations, 52 physicians, as well as physician assistants and advanced registered nurse practitioners, physicians are compensated according to what they earn, and the group does not impose uncomfortable work standards. “We haven’t grown in our community and brought together this group because people are unhappy,” he said. “Physician satisfaction is paramount to long-term success in any organization.”

Investigating choices

Due diligence is important when examining practice options.

When considering a practice, Dr. Siegel recommended talking with people who belong to the group and examining various other aspects. “Look at the group’s marketing. Is it ethical? Do they have a good reputation? Are the docs in the practice you want to join the ones whom everyone respects?” he said. Many of the primary care physicians and specialists his practice has worked with for years have joined the group that he and his colleagues did and are doing well. “That, for us, was a great motivation,” he said.

Dr. Olsen suggested that dermatologists factor in quality of life and quality of practice issues. “I think we all love to practice, and it becomes more difficult with the regulatory burden, so if I can go forward by joining a group and maintain a practice base of so many patients a day, what I’d like to be able to maintain, and at the same time remove all of the hassles and obstacles that allow for physician frustration to rise, that would be the appeal to me,” he said.

Sometimes the bottom line is how physicians prefer to practice and how much the money is important to them, Dr. Williams said. “You might make a little less if you’re by yourself ... but you can do it the way you want and no one can tell you how many patients to see per hour. No one can tell you how much vacation you can take. No one is watching your productivity,” Dr. Williams said. “One thing that I think is unfortunate in medicine these days is that in the workplace you’re evaluated by how productive you are, which is based on how much money you collect, not on what you did for your patients.”[pagebreak]

Dr. Olsen suggested that dermatologists be frank in terms of what they would like. “I think negotiation is important to make sure that they get what they want because the door swings both ways in a negotiation,” he said.

Consulting advisors such as accountants and attorneys is recommended, but Wagener also advised that dermatologists listen to their hearts and weigh the pros and cons. “Their instincts are probably pretty good,” he said.

The solution will not be perfectly clear, Wagener added. “We really believe here that aligning yourself with the right partners will give you the best shot,” he continued. “Contracts are contracts, but what’s really important is what’s in the hearts and minds of men. And you have to feel good about the people you’re working with, you have to feel that philosophically you are in tune.”

Wagener also reminded dermatologists to take a long-term view. “It’s going to be 10 years before this whole thing has played itself out and we know what effect it’s had on our lives,” he said. “Nothing has happened too, too quickly just yet.”